Designer Brands: Stumbling On The Earnings Runway

Core Viewpoint - Designer Brands Inc. (NYSE:DBI) reported disappointing Q2 2024 earnings, with a non-GAAP EPS of $0.29, missing estimates by $0.24, and revenue falling short by $44.24 million [3][6]. Financial Performance - Q2 2024 non-GAAP EPS was $0.29, down from $0.59 year-over-year [19]. - Revenue for the quarter was $772 million, a decrease of 2.6% from the previous year [18]. - Adjusted net income fell to $17.1 million from $39.4 million [18]. - Gross margins decreased by 170 basis points to 32.8% due to lower mark-ups and increased promotions [18]. - Operating expenses rose to 28.9% of sales, up from 26.9% [18]. - Interest expenses increased to $11 million from $6.9 million [18]. Market Position and Strategy - Designer Brands operates over 640 stores across the U.S. and Canada, with a focus on footwear and accessories [7]. - The company has shifted its strategy towards athletic and athleisure products, which now represent 42% of its offerings, up from 32% in 2017 [13]. - Sales of the top eight athletic brands increased over 30%, contributing to overall athletic sales growth of 16% [13]. Consumer Trends - The athleisure market is projected to reach $456 billion by 2029, with a CAGR of over 6% from 2024 to 2029 [13]. - Consumer sentiment is affected by inflation, leading to reduced spending on non-essential items [11]. Future Outlook - The company expects positive EPS growth in the second half of 2024, driven by strength in athletic and casual segments [15]. - DBI lowered its full-year earnings outlook to $0.50-$0.60 EPS, down from $0.70-$0.80, due to a slower recovery [19]. Valuation and Debt - DBI's blended price-to-earnings ratio is 8.83x, lower than its usual 12.15x, indicating potential valuation concerns [16]. - The company has a total debt of $1.28 billion against a market cap of $297.11 million, leading to a high long-term debt-to-capital ratio of 68.2% [16]. - The EV/EBITDA ratio of 17.14 is significantly higher than the sector's 10.64, indicating higher leverage [16][17].